Kaplan: Video gaming cafés a boon to retail vacancies

Jan. 25, 2014

Now that video gaming has caught on in most municipalities throughout suburban Chicago, one new twist that has benefitted retail landlords is video gaming cafés.

Already the rage in some western states, such as Oregon and Nevada, these new business establishments cater to women over 35 and offer pleasant, friendly environments to socialize with friends over a drink and/or a sandwich and do some legal gambling at up to five terminals per location. Anyone over 21, including men, are welcome.

Previously vacant storefronts are attracting these new players to the market, and they are paying top rents. These businesses are virtual cash cows, with most of their revenue derived from the gaming devices and not so much from the food and liquor. The food consists of breakfast, lunch and dinner – seven days a week – and liquor, beer and wine are on the menu.

To open a video gaming café, the proprietor must obtain a liquor license from the municipality or county. Gaming machine licenses are only granted to establishments if they have a liquor license. According to Gary Leff, CEO of Laredo Hospitality, who heads up Stella’s Place, a single gaming café can generate $30,000 a year in revenue to the municipality. That’s not exactly red-light camera money, but it’s not chump change, either.

An Oct. 8 Chicago Tribune article reported that “over the next few months, dozens of video gaming cafés could open in the Chicago area. Twenty locations are already operating in south and central Illinois. And another 80 soon could come on line, mostly in the Chicago area.”

Three of the prominent leaders in the video gaming business are Stella’s Place, Lucy’s Place, and Dotty’s Café. I recently attended a grand opening for Stella’s Place at 1171A N. Barrington Road, Hoffman Estates. Dotty’s just opened in Crestwood at 13557 Cicero Ave. Both are snapping up locations in towns where video gaming has been approved. Lucy’s, Penny’s and Betty’s are three other names in this newly evolving business craze.

The benefits of this relatively new state law in Illinois allowing gaming are legion. The local taverns who obtain a gaming license stand to make an average of $5,000 per month, according to George Lange of Gold Rush Amusements, a major purveyor of the actual gaming devices. This bonus money has allowed struggling tavern owners to improve their buildings with new roofs, signage, interiors, etc. They get to keep 35 percent of the money taken in by the machines. The state takes 25 percent of the money, and the municipality takes 5 percent.

Critics of video gaming say the losers are the people who get hooked on the games, often gambling away their paychecks or mortgage payment. The addictive aspect of gambling seems to be the overriding concern of the opponents.

I probably never will partake in one of these establishments, at least not for the gaming component. I don’t even play the lottery. But as a commercial real estate broker watching clients suffer with empty stores for several years, I see this new category of business as a shot in the arm. These new businesses pay top rents, they hire local employees, and they pay sales and gaming taxes. For most local economies, it doesn’t get much better than that.

Towns in and around McHenry County that have approved video gaming are Algonquin, Cary, Fox Lake, Fox River Grove, Gilberts, Hampshire, Huntley, Johnsburg, Lake in the Hills, Lakemoor, McHenry, unincorporated McHenry County, Oakwood Hills, Richmond, Port Barrington, Ringwood, Spring Grove, Union and Woodstock. Others are conspicuous by their absence.

Those that haven’t approved video gaming, such as Crystal Lake, have been accused of putting their local bars at a disadvantage. This approach of taking the moral high ground is the City Council’s prerogative, but I just can’t see why they would want their residents to spend money in somebody else’s town.

It’s OK to buy lottery tickets but not drop coins in a machine? Whatever happened to free will?

Opponents say these machines are the crack cocaine of gambling. I say they are no more the crack cocaine of gambling than frequent flyer miles are to credit card debt. Of course, if all towns allowed this, no one would have the upper hand.

Like it or not, these new businesses are coming to a town near you. Multiple millions of dollars are going to be made and lost in the name of entertainment.

If you are looking for redeeming social value, you are barking up the wrong terminal.

Go visit one of these places like I did, and see for yourself. You might actually like it.

• Bruce Kaplan is a senior broker associate with Premier Commercial Realty in Lake in the Hills. Reach him at brucek@profit-success.net or www.profit-success.net.